Japan - August 2021

S P OT L I G H T
Savills Research

Osaka Residential
Markets

Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

Osaka Residential Markets

Osaka’s residential market shows resilience• Even throughout the pandemic,
residential demand in Osaka has
been underpinned by positive
population growth – a trendthat has persisted since 2000.
In contrast, Tokyo’s residential
market has recently shown signsof softening.
• Although COVID-19 has halted
growth, rents remain well over2019 levels.
• G iven the circumstances,
occupancy levels haveunderstandably shown slightsigns of softening. That said,
they remain over the crucial
95% mark, indicating that soundleasing demand remains.
• M ost of the population growthobserved amidst the pandemic
was primarily within the central
six wards (C6W). Unlike Tokyo,
the tendency to move beyond
the city borders for larger sizedapartments is not apparent inOsaka.

1 This figure is a sum of net migration to Osaka. Since this is notincorporating natural causes (births and deaths), in addition toother differences in methodology, the figure does notnecessarily match the population change reported by the city.

GRAPH 1: Osaka City Migration Flows, 2020

• Redevelopment projects
such as the highly anticipated
Umekita 2nd Project and otherinfrastructure improvements
across the city should continue
to enhance the attractiveness ofOsaka over neighbouring areas.

16,331

GreaterTokyo
18,393

1872,920

96

131,2,
24

10

567,188,98• Supported by its soundeconomic base, Osaka’s
economy is expected to recoveras the global economy starts
moving towards normalcy, andthe progress of the vaccine
rollout should help the ailing
tourism and services industry.

MACRO DEMOGRAPHIC TRENDS
In 2020, Osaka City saw a net-migration of
17,000 people – 0.6% of the 2019 population1,-2,062

Summary

pandemic, and as a result, its residential sector
has avoided the softening witnessed in thecapital. As discussed in our Regional Japanese
Office Markets report in July 2021, the relatively
slower uptake of remote work in regional cities
may go some way towards explaining thisdifference in demographic trends.
Looking ahead, Osaka should expect a stable
recovery, especially once inbound tourism
gradually returns. Moreover, in addition
to the aforementioned World Expo 2025,
progress appears to have been made on theIR front. Namely, the potential JPY1-trillion
project proposed by Orix and MGM Resorts
International is expected to have a large
positive economic impact on the region.
Elsewhere, major improvements planned for
Osaka’s transportation infrastructure should
also add to the city’s momentum (please refer
to our Osaka Real Estate: Rebirth of a Market May 2019 for further information).
In this report, therefore, we will analysethese positive drivers that have underpinned
Osaka’s residential market and shed somelight on future demand dynamics.

INTRODUCTION
Thanks to booming inbound tourism,
Osaka’s economy was on a roll before thepandemic struck. As tourists, especially fromneighbouring Asian countries, flocked tothe city, retail sales soared and hotel supply
struggled to keep up with growing lodging
demand. At the same time, the prospects of
the World Expo 2025 in addition to a potential
integrated resort (IR) development meant thatthe city was in an enviable position.
Now, however, with the pandemic
disproportionately hurting the hospitality
and retail industries, Osaka’s prospects havedimmed. In the case of the latter, department
store sales plummeted by over 29% year-overyear (YoY) in FY2020 according to the Japan
Department Stores Association. At the sametime, various areas in the region also saw large
declines in commercial land values last year,with Dotonbori, one of the top tourist sites in
Osaka, topping the official nationwide list witha 28% drop.
Despite these difficult circumstances, Osaka’s
residential market appears to have held up wellthus far. Specifically, occupancy rates havestayed relatively elevated, and rental growth
has continued, albeit moderately. One possible
factor driving this trend is the steady population
flow into the city. Here, unlike Tokyo, Osaka has
maintained net positive growth throughout theGreaterOsaka,643

141 ,43307

Others

Source Ministry of Internal Affairs and Communications, Savills Research & Consultancy*Here, Greater Osaka consists of Osaka, Kyoto, Hyogo, and Nara.
Greater Tokyo consists of Tokyo, Kanagawa, Chiba, and Saitama.

savills.co.jp/insight-and-opinion/2

Osaka Residential Markets

continuing the positive net-migration trend
since 2000 and, in turn, maintaining market
stability. At a more granular level, population
growth has been distributed unevenly within
the city as central areas have become more
popular. As such, at the submarket level,some areas have seen stronger growth thanthe city average, creating opportunities forresidential investments.
Looking at the population flows between
regions, Greater Osaka is the major sourceof migrants into Osaka City (Graph 1).
As discussed in our Regional ResidentialMarkets - March 2021 report, this tendency
for people to move within the same region
is common across Japan. While many
possible reasons could explain this trend,
an obvious one is a preference to stay close
to hometowns, with multiple surveys
supporting this view.
Even so, Osaka’s net-migrationfrom Greater Tokyo is negative. This is
unsurprising considering that migrants,
especially young ones, are willing tomove for jobs and education, and Tokyo
undoubtedly provides the highest qualityof both. Nonetheless, a majority of theresidents of Greater Osaka choose to stayin the same region, and for them, moving
to Osaka, the regional social and economic
hub, is a reasonable option.
We expect Osaka City to continue seeing
positive net-migration to the city. As
discussed in the following sections, Osaka
has attributes that make it attractive interms of education and job opportunities,
relative to its neighbouring areas.

The ban on international travel
continues to be a major headache for
Osaka’s economy yet the residential
market has proven to be resilient.
Looking ahead, tailwinds in the formof positive demographic trends, aswell as a strong pipeline of projects,
should help revitalise both the cityand the sector.
EDUCATION
Osaka boasts some of the top ranked
universities in Japan, and these universities
draw in an impressive number of students
every year. In 2020, 56,000 students
matriculated at universities in Osakaaccording to the Ministry of Education,Culture, Sports, Science and Technology’s
yearly survey – the second largest afterTokyo. Of that figure, approximately
29,000 were from outside the prefecture,
and approximately 50% of these students
originate from the surrounding Greater
Osaka region with most of the remaindercoming from other nearby regions such as
Shikoku and Chugoku. This, again, supports
the view that Osaka’s positive population

GRAPH 2: Large-scale Companies per One Million People, 2016

LARGE-SCALE COMPANIES PER ONEMILLION POEPLE

500450400350300

growth is rooted in its status within theregion.
Furthermore, there is a strong preference
among university students who study inOsaka to remain in the prefecture postgraduation. According to a survey ofgraduating university students by Recruit,
Osaka has been able to retain approximately
50 to 60% of its graduates over the last
few years. Considering that most students
who study in Osaka come from nearby
prefectures, as seen above, it is again
unsurprising that many choose to stay given
the job opportunities available and theability to remain close to their hometowns
at the same time. Even some students fromoutside of the region seem to develop someemotional attachment to the area, according
to the same survey.
As such, higher education is an important
entry point into Osaka for many. Consideringthat a large portion of the students arewilling to stay in Osaka after graduation,
the city’s high ranked universities should
continue to function as an anchor for its
steady population trends. Additionally, thecity’s ability to tap into this stable talentpool is also an economic strength in acountry facing a population decline.

250
200
150
100500Source Ministry of Internal Affairs and Communications, Savills Research & Consultancy* Large-scale companies are defined by the Small and Medium Enterprise Agency’s criteria set fordifferent industries. For instance, in the manufacturing industry, large-scale companies are the ones withmore than 300 employees or are capitalised at more than 300 million yen.

3EMPLOYMENTOsaka is the economic powerhouse ofGreater Osaka, and the city generates abouta quarter of its GDP. In FY2018, for instance,
Osaka City’s real GDP was about JPY20
trillion – equivalent to the GDP of nations
such as New Zealand. The city also has thesecond highest concentration of large-scalecompanies after Tokyo. It is, therefore,
unsurprising that young workers are drawn
to the city for work.
The relationship between net migrationand economic conditions is also clear, with
Osaka City seeing inflows in tandem withOsaka Residential Markets

GRAPH 3: Net-migration to Osaka vs Corporate Profits, 1986 to 2020
Net-migration to Osaka City (LHS)

20Corporate profit (RHS)

90

1070

560050-540-1030-1520-20

10-250

THOUSAND PEOPLE80

JPY TRILLION

15Source Ministry of Internal Affairs and Communications, Ministry of Finance, Savills Research & Consultancy

GRAPH 4: Net Migration from Greater Osaka to Osaka City and from Greater Tokyo
to Tokyo by Age, 2020

NET MIGRATION FROM THE SAME REGIONTokyo 23W

Osaka City

15,00010,0005,000

0-5,000-10,000

Source Ministry of Internal Affairs and Communications, Savills Research & Consultancy

GRAPH 5: Osaka City Population in June 2021 and CAGR, 2010 to 2020
June 2021 Population (LHS)

CAGR (2010-2020) (RHS)

200

3.0%

180
THOUSAND PEOPLE

growing corporate profit levels. Specifically,
more people appear to move to Osaka as
economic conditions improve and companies
become active in hiring.
The economic expansion that prevailed
prior to the pandemic helped the positive netinflow of population to Osaka with the figure
gradually increasing since 2000 (Graph 3).
Although the recent pandemic appears tohave slowed growth over the past year, adecrease in population, like Tokyo, does notseem to be occurring. Furthermore, limited
prevalence of remote work arrangements
is likely to have helped the city retain its
population so far.
It is also worth noting that people in Osaka
have less propensity to move to neighbouring
areas later in life, unlike Tokyo. In thelatter, people tend to move to prefectures
such as Chiba, Saitama, and Kanagawa forlarger, affordable housing as their families
grow, but the former does not seem todemonstrate the same pattern (Graph 4).
This could indicate that Osaka has more
affordable units for families within the city,
thereby successfully limiting population
outflow. This pattern could work as a buffer
against the potential deepening of theremote work trend in Osaka since people
already have enough options within the cityeven if they need larger spaces.

160

2.0%

140
120

1.0%

100
80

0.0%

60
40

-1.0%

200
TaishoNaniwaKonohana

MinatoFukushima

Tennoji

Asahi

Higashinari

Nishiyodogawa

Nishi

Chuo

Miyakojima

Abeno

Nishinari

TsurumiSuminoe

Higashisumiyoshi

Kita

Ikuno

JotoSumiyoshi

Higashiyodogawa

HiranoYodogawa-2.0%

Source Osaka City Government, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

4

DEMOGRAPHIC TRENDS WITHINOSAKA CITY
In line with trends highlighted previously inthis report, Osaka City’s overall population
is expected to grow at a steady pace as thecity continues to provide excellent education
and work opportunities relative to otherareas in the region. Looking closer, however,growth is expected to be uneven within
the city as the central six wards (C6W) arepoised to experience disproportionately
stronger growth.
This trend could be partially attributable
to the increase in dual-income households
that prefer to live closer to their workplaces
located in the city centre. Anotherpossible explanation could be the recent
redevelopments in central areas, especiallyin Umeda, which have made living in the city
centre more attractive.
It is worth noting that the relatively
stronger growth of central areas is notunique to Osaka. Tokyo’s central five wards(C5W), as well as other major regional cities,
have also seen similar trends. However, inthe capital, the pandemic appears to havereversed this trend somewhat as remote work
has made larger units outside of the central
area relatively more attractive. In Osaka thepopulation in the C6W has continued toincrease through the pandemic (Graph 6).
If remote work becomes more prevalentin Osaka, the city’s C6W might also see aOsaka Residential Markets

similar reverse trend to Tokyo. However,as discussed in the previous section, larger
apartments that better accommodate remote
work are generally more affordable andavailable in Osaka City than in Tokyo, thusreducing the need for people to move outof the city. Therefore, even if remote work
becomes more widespread, the effect onOsaka should be more limited than in Tokyo.

GRAPH 6: Osaka Population Growth, 2019 to Q2/2021
Osaka City

Osaka C6W

1.5%
1.0%

QOQ

0.5%
0.0%

-0.5%
-1.0%
-1.5%

Source Osaka City Government, Savills Research & Consultancy

GRAPH 7: Osaka City Rents, 2016 to Q2/2021
2,800
2,750

JPY/SQ M

2,700
2,650
2,600
2,550
2,500
2,45020182020

Q1Q2Q3

Q4Q12019

Q2Q3

Q4

Q1Q2Q3Q4Q1

2017

Q2Q3

Q4Q1

2016

Q2Q3

Q4

Q1

Q2

2,400
2021

Source Savills Research & Consultancy

GRAPH 8: Osaka City Occupancy, 2016 to Q2/2021
100%
99%
98%
97%
96%
95%

OSAKA RESIDENTIAL LEASING
Although the pandemic halted rental growth,
the 27% increase in rents from 2011 hasremained intact amidst the pandemic.
Similarly, occupancy levels have softenedslightly since the pandemic hit, but remainover 95%, indicative of sturdy leasing
demand in the city.
Larger flats in the 45 to 60 sq m range
have underpinned the market during thepandemic with noticeable growth indicatinga strong trend for more spacious apartments.
Meanwhile, the popularity of smaller size
bands has begun to level off moving into
2021. This can be partly explained by theminor increase in teleworking requiring
larger apartments. Additionally, withthe potential for it to become a staple insome companies’ work cultures, this trend
could support the demand for large sizedapartments moving forward.
The sound market thus far has culminatedin steadily narrowing residential yields
with J-REIT transaction cap rates ranging
between 4% and 5%. Moreover, total housing
stock has been increasing steadily over thelast two decades. Much of the new rental
stock is concentrated in the city centre,
reflecting where both current demand is andwhere most young workers in the 20 to 29
age range tend to move to. However, areas
such as Yodogawa are also seeing high levelsof young people move there, which could
provide investment opportunities given theageing stock in the area.
Looking ahead, according to the Regional
Economic Assessment conducted by theBank of Japan in July 2021, the overall
economy of the Kinki 2 region where Osakais located is expected to improve, hopefully
bringing with it a further improved job
market to attract both new graduates andprofessionals. Furthermore, with liveability
and amenity focused projects on thecards over the next few years as well as anaccelerated vaccination rollout, positive
net migration looks set to continue andsubsequently provide a tailwind for theresidential leasing market.

94%

2016

2017

Q1

Q2

Q3

2020

Q4Q2

Q1Q32019

Q4Q2

Q1Q32018

Q4

Q1

Q2

Q4

Q2Q3Q1Q4Q3

Q1

Q293%
2021

Source J-REITs, Savills Research & Consultancy

52 The Kinki region consists of Osaka, Kyoto, Nara, Shiga,Hyogo, and Wakayama.

Osaka Residential Markets

OUTLOOK
Osaka’s residential market has coped relatively
well despite the economic strain caused by thelarge drop in inbound tourism. Additionally, thedemographic changes witnessed in Tokyo have notmaterialised in Osaka, with the city’s population
continuing to grow throughout the pandemic.
Historically, Osaka’s population growth has
been supported by young migrants who moveto the city for educational and professional
opportunities. This dynamic has provided a basefor sound residential demand and has reinforced
the leasing market. Although the pandemic
softened Osaka’s residential market, with anaccelerated vaccine rollout, Osaka’s status as a
powerful regional hub should continue to draw

more of the young population, especially within
the Greater Osaka region.
Moreover, the redevelopment underway inOsaka should further enhance its attractivenessover neighbouring areas. For instance, the highly
anticipated Umekita 2nd Project in the heart ofthe city is set to provide a plethora of state-ofthe-art offices, hotels, commercial spaces, andhousing in 2027, with some facilities opening in
2024. Infrastructure developments across thecity are also set to improve transport access andprovide further amenities to citizens. In addition,
the World Expo 2025 and a potential integrated
resort project, which may introduce 88,000 jobs,
should act as tailwinds for the city’s long-term
prospects.

Overall, Osaka’s residential leasing market
appears to have sound fundamentals. Backed
by the exciting new projects and the expected
comeback of inbound tourism, the city is likely toregain its momentum as the pandemic subsides.

For more information about this report, please contact us
Savills Japan

Savills Research

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head ofResearch & Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Yoshihiro Kanno
Manager, Research &Consultancy, Japan+81 3 6777 5275
ykanno@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Pacific+852 2842 4573
ssmith@savills.com.hkSavills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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